Gold Falls,Global markets declined in light volumes on Wednesday

Global markets declined in light volumes on Wednesday, as the price of gold fell and a report showed eurozone banks were hoarding cash from the European Central Bank instead of recirculating it through loans.

In Toronto, the benchmark S&P/TSX composite index fell 198.26 points, or 1.66%, to 11,728.41. Nine of the 10 sub-indexes declined, led by materials, down 4.22%, and energy, which fell 1.62%.

The price of crude oil fell US$1.98 to US$99.36 a barrel as investors were reassured that even if Iran did block the Strait of Hormuz to oil shipments as it has threatened, the situation would not last long enough to cause real shortages. The price of gold dropped for the fifth straight session - its longest slump since October 2009 - closing at US$1,562.90 an ounce, a loss of US$31.30. It has fallen in 10 of the last 12 sessions. "As a hiding place, it served its purpose," Bob Decker, a money manager at Aurion Capital in Toronto, said of gold. "As people look to the new year with a little more optimism with regard to the U.S. economy, maybe they're taking profits in their winning trades."

Profit-taking - and getting the house in order as the year ends - explained much of the declines on the markets, which came back from the Christmas holiday on Tuesday and in Canada on Wednesday.

"Volume goes light and really the only things that are left are the hedge funds making sure that they're in good shape for year-end and a lot of them have to sell to cover their losses," John Kinsey, portfolio manager at Caldwell Securities, said.

"The other part of it is the windowdressing," he said. "This is the most important quarter for window-dressing because it's obviously the end of the year for most mutual funds and other corporations and so they all sell their losers and that puts pressure on the market."

The Canadian dollar fell 33 basis points to US97.64¢ on Wednesday as the U.S. dollar advanced.

Also a factor on Wednesday were reports that eurozone banks were sitting on cash from the ECB. "If the eurozone banks are too afraid to lend, that does not bode well for future growth in the region," Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, told Bloomberg. "The banks are not borrowing from the ECB in order to spur lending. It's to shore up their own balance sheets. That could lead to a credit contraction in the eurozone."

The Dow Jones industrial average fell 139.94 points, or 1.14%, to 12,151.41 and the Nasdaq composite slipped 35.22 points, or 1.34%, to 2,589.98. Canada's junior Venture exchange dropped 18.60 points, or 1.27%, to 1,451.08.

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The chase by Noah Zivitz:

Where do we start?
Crude oil continues to hover above $100 per barrel, after settling at its highest level since mid-November, on the heels of renewed threats from Iran about shutting the Strait of Hormuz. Let’s continue to probe the stakes for international diplomats tasked with watching over Tehran’s nuclear strategy, while also keeping oil flowing through the strait. And after seeing U.S. consumer confidence rise yesterday to heights unseen since April, let’s try to quantify the psychological impact of $100+ oil.

Italy’s short-term borrowing costs were cut in half in a $12B debt auction today. The next test comes Thursday, when Rome seeks to raise $11B in longer-term debt. Let’s hear about the sustainability of demand for Italian bonds, and how much of that demand comes from banks basking in cheap cash, courtesy of the ECB.

Those look like the biggies. But we’ve got plenty more to sift through:
Athabasca Oil Sands has received full regulatory approval for its Mackay River oil sands project, with construction slated to start next month. This is a 40/60 joint-venture with PetroChina, and forces us to ask (once again) about labour constraints in the Canada’s energy hub.

Fresh off the wires, Ruggedcom just announced a poison pill to give itself plenty of time to consider options after Belden recently disclosed its plan for an unsolicited takeover offer. Paul Bagnell will give this one a look, and I’d like to find out whether other bidders could line up for Ruggedcom. We’ll chase the company.

Bombardier provides the other notable Canadian corporate story thus far today, with a $300-million rail contract in London. We’ll be peering into the company’s order book today as it prepares for a critical year in the evolution of its CSeries jet.

There's still a story to be told after Sears Holdings yesterday showed the wear and tear of a hyper-competitive retail sector. In case you missed it, SHLD disclosed a plan to close up to 120 stores, and said it will "carefully evaluate store performance going forward and act opportunistically to recognize value from poor performing stores as circumstances allow." In other words, CEO Lou D'Ambrosio has more work to do. As we return to our desks and have our first chance to do a holiday shopping debrief, I want to hear what the winning strategies have been, and whether Sears Holdings will regain its footing.

The U.S. Treasury Department dodged fireworks with Beijing after it declined to label China a currency manipulator in its report to Congress late yesterday. Even so, it's giving China a nudge, saying RMB movement thus far is insufficient -- and plans to press for policy moves that will inject some more flexibility into the currency. How long will the U.S. wait before using the m-word, and how detrimental is China's currency strategy to global economic rebalancing? We’ll bring it up with Stewart Hall at 9:35.

Barack Obama is going the bipartisan route with his latest nominations to the Federal Reserve’s board of governors. Possibly in a bid to facilitate the Senate approval process, U.S. President Obama is offering up a Republican, Jerome Powell, as a nominee alongside Democrat Jeremy Stein. Powell has quite the résumé, having worked in the Treasury Department during George H W Bush’s presidency. Powell also spent time as a partner at Carlyle Group. We’ll be familiarizing ourselves with Powell and Stein in the lead-up to their nomination hearings.

An unnamed U.S. Treasury Department official yesterday said the White House will be asking for a $1.2-trillion debt ceiling boost before the end of the week. It looks like this request for extra borrowing power will be far more routine than the downgrade-inducing showdown in August.

It’s as good a day as any to explore supply and demand for rare earths, after China unveiled a full-year export quota for 2012 that looks essentially unchanged from 2011 – but there’s more to the story than the headline.

The quota covering the first half of the year is being sliced by 27%. Let’s find someone who can help us understand China’s export strategy, and how buyers are adapting.